This paper provides a novel algorithm for identifying harmonic sources in power distribution systems. This algorithm is developed based on an observer design to carry out harmonic estimation for a combination of suspicious nodes. The estimation error is analysed to determine the existence of harmonic sources in the specified node combinations. This approach is used to determine the source of both single and multiple harmonic sources in distribution systems with time varying load parameters. For systems with a large number of suspicious nodes, the system may be divided into sub-systems and the algorithm is applied to each sub-system to identify the harmonic sources present. Simulations are carried out on a benchmark IEEE distribution test feeder for both single and multiple harmonic sources and a number of scenarios are simulated to verify the accuracy and robustness of the proposed approach. The results show that the node combinations which represent the harmonic sources yield an estimation error which approaches zero asymptotically.